Recently two columnists wrote about their experience with managing their own SuperFund. Meg Heffron started her Self Managed Super Fund (SMSF) somewhat unconventionally, with a balance of just $30,000. Liam Shortz, on the other hand, started his with a balance of $200,000. Both experiences have been successful for the parties involved, however, their approaches highlight some of the pros and cons of the different stages of your financial life in which you might consider establishing a SMSF. They might help you in making your decision on whether or not this strategy is right for you.
Pros of starting a SMSF early
- You have control of your money right from the relative beginning of your SuperFund life;
- You will have the opportunity to make mistakes early! This gives you time to learn from them and recover financially before the time comes to retire;
- It is relatively cheap to move to a SMSF early, whereas is may not be later in your Super life – For example, there is potential to incur capital gains taxes (CGT) on liquidation of assets to transfer your balance or crystallising capital losses that are quarantined in your current fund;
- You will have long term consistency with your superannuation fund, eliminating the potential for lost super.
Cons of Starting a SMSF early:
- You may hesitate to pay for insurance from a small balance on top of administration fees. This can become expensive and you may be enticed to cancel your insurance to cut costs, leaving you exposed during a period of your life where you are likely to have significant liabilities (e.g. a home mortgage or investment loans);
- It is a risky move for the uninformed trustee due to the potential for mistakes.
Pros of starting a SMSF late:
- You have the opportunity to make time to invest in your fund aggressively and build a large and diverse portfolio, increasing the potential for later investment opportunities once you start your fund;
- You have well established insurances and will not feel the need to have to cancel them simply because it’s another added expense;
- You will have more time to consider the planning and running of the fund and how you might use it in the future.
Cons of waiting and starting late:
- It may be more expensive to move to a SMSF at a later date due to accrued CGT, as noted above;
- You don’t have the benefit of having full control of your money right from the beginning – someone else has been controlling it for the last decade;
- You have less time to learn the ropes and make mistakes as you are closer to retirement and you have other responsibilities such as work and a family which limit the significant time needed to learn your SMSF and to maintain it;
- You will have a lack of SuperFund consistency, which opens the door for potential lost super, particularly if you have more than one account.
SMSFs work differently for everyone. Ultimately, when (or if) you start a SMSF is up to you. But if you’re looking for more information, speak to Grange Business Partners today for advice and guidance.